91-64 SOES Tier Levels to Change for 487 Issues on October 31, 1991

On June 30, 1988, the maximum Small Order Execution System (SOES) order size for all Nasdaq National Market System (Nasdaq/NMS) securities was established as follows:

A 1,000-share maximum order size was applied to those Nasdaq/NMS securities that had an average daily nonblock volume of 3,000 shares or more a day, a bid price that was less than or equal to $100, and three or more market makers.

A 500-share maximum order size was applied to those Nasdaq/NMS securities that had an average daily nonblock volume of 1,000 shares or more a day, a bid price that was less than or equal to $150, and two or more market makers.

A 200-share maximum order size was applied to those Nasdaq/NMS securities that had an average daily nonblock volume of less than 1,000 shares a day, a bid price that was less than or equal to $250, and less than two market makers.

These order-size tiers were set by the NASD after extensive research and polling of all Nasdaq/NMS market makers. The purpose of establishing these tiers was to provide public investors with the most efficient means of handling their small orders while ensuring that market makers were not required to assume unrealistic risks under the new mandatory SOES participation rules.

At the time of their establishment, the NASD Trading Committee and Board of Governors decided that the tier levels applicable to each security would be reviewed periodically to determine if the trading characteristics of the issue had changed so as to warrant a SOES tier-level move. Such a review was conducted as of June 28, 1991, using the aforementioned formula and second-quarter trading data. The results of this review were analyzed by the SOES Subcommittee and the NASD Trading Committee, which recommended that changes in SOES tier levels should be implemented per the formula calculation with the exception that an issue would not be permitted to move more than one level.

To further explain, if an issue previously was categorized in the 200-share tier, it would not be permitted to move to the 1,000-share tier even if the formula calculated that such a move was warranted. The issue could move only one level to the 500-share tier as a result of any single review. Likewise, a security previously assigned to the 1,000-share tier could move only to 500 shares, regardless of the formula calculation. During the most recent review, 27 issues were affected by this change. In adopting this policy, the Committee was attempting to minimize market-maker exposure on issues for which the tier level increased and to maintain adequate public investor access on issues for which the tier level decreased.

The committee also recognized that the formula used to assign the tier levels cannot always accurately reflect the trading characteristics for each issue. As such, market makers are reminded that the SOES Subcommittee will review on a case-by-case basis suggested tier-level changes if a significant number of market makers in that issue believe such a change is warranted. For more information regarding this process, please contact Nasdaq Market Listing Qualifications at (202) 728-8039.

Following is a listing of the Nasdaq/NMS issues that will require a SOES tier-level change on October 31, 1991.